The War on Small Business

One of my favorite TV personalities is John Stossel who has a show on Fox that highlights current consumer issues with his libertarian bent. He usually takes a look at a current issue and then breaks down how that issue is being handled by the free market and how the government is handling that issue through its regulatory arm.

In his previous life as a reporter for ABC, John Stossel would go around looking at how business owners would try to take advantage of the little guy and then do a report on the damage being wrought by this business. His main aim was to heighten a concern in the hopes that the politicians would take note and create a new law to stop this type of abuse. He has since repented of his ways, and he understands the damage he wrought by continually asking the government for new laws. He know believes that the free market will eventually regulate these endeavors and for the most part government intervention is not needed.

Small Business Owner






For example, one of the many cries during the financial crisis that occurred in 2008 was that the financial crisis took place was because there was not enough regulations in the financial industry. The media critics and the pundits all declared that our financial institutions had gotten so large they were deemed “Too Big To Fail” and because of that, these institutions had to be bailed out or else the whole economy would have collapsed. Subsequently, many banks were taken over, shut down and merged (Bear Stearns, Lehman Brothers, Wachovia, etc.) The result of these closings has made the existing banks bigger than ever. In addition, the banks have had to deal with a tremendous amount of new regulations. Believe it or not, the existing banks like these new regulations because they know that the smaller banks don’t have the time or the money to comply with these new laws and are then forced to get out of the business. Which in turn, has made the largest banks bigger than they were before the crisis.

The ideal situation would have been to break up all the bigger financial institutions and then lessened the regulatory burdens so that smaller institutions could have gotten into the business. It would have been a good way to disperse risk as money would have moved out of some of the major money centers and into smaller regional banks- which would have reduced some of the concentration of wealth. Instead, what we have now are super huge banks and now they really are “too big to fail”.

Maybe that was the intention of the government all along to concentrate the wealth and power in a few hands. It is easier for the government to monitor and regulate a handful of institutions than a smorgasbord of banks dispersed throughout the country. I believe the following is happening not only in banking but in all industries- the move to burden the small operator so much that they are forced to merge or sell to bigger companies or close shop altogether. In my opinion, the federal government is engaged in a deliberate scheme to force consolidation in the business sector so that it only has a handful of companies to monitor and regulate, rather than deal with the millions of small , tough minded entrepreneurs. The big business heavy regulated economy is how Europe and socialist states are run and it is the direction we are heading.

For example take a look at Obamacare. “The number of medical codes that must be used to document patients and secure payments for insurers will go from 45,000 to 160,000.”(Dan Kennedy) I would gather that the very large medical centers that have large staffs will be able to process the additional work flow at a lower costs because they can transfer the work to a greater percentage of people. The small practice will have to endure 4x the amount of work and complexity, compliance and related costs which they will not be able to pass down to their patients thus drain the compensation of the doctors and their practice. As a result of this, expect to see a wave of mergers and mega hospitals come into being. This will remove choice and retard access for people looking for medical care.

Part of the reason we have not seen the bounce back in the economy since 2008 has been the difficulties that the entrepreneur has faced and Obama’s move to consolidate the business sector. However, America has always been a resilient country and the entrepreneur has always been the backbone of this country, all we need now is a political class to empower these people and not hinder them.

Steven Clark



A Nevada Rancher and the Nazis

The “greenest” faction of the Nazi war machine was the SS.  Heinrich Himmler who headed the unit was an animal lover, a vegetarian and organic farming enthusiast. In fact, at Treblinka, the SS had beautiful picnic grounds and a zoo, while the last sight the Jews saw before entering the gas chambers was an exquisite flower garden. The SS advocated an ideology of “blood and soil” that rolled into one policy evolutionary racism, peasant agrarianism and environmentalism.

CowsSo, it is possible to be politically correct while simultaneously being inhumanely insane. Which brings me to Cliven Bundy and the Obama Administration.

Mr. Bundy is a fourth generation rancher in Nevada. He has been grazing his 500 cattle on Clark County, Nevada public lands as did his father and grandfather before him. He has paid his grazing fees to the County and the State. He has not, however, paid fees demanded by the federal government as it is his position, supported by the Governor of Nevada, that the U.S. Government and Bureau of Land Management have no authority to collect them.

The response to his refusal to pay those fees is now the theft of his private property by the Federal Government (200 cattle thus far captured and removed), armed marshals surrounding the remainder as well as he and his family, his son tasered and a dangerously escalating situation. Memories of Waco and the Branch Davidian Sect standoff come to mind. The prospects for this ending poorly increase exponentially by the day.

The regulation and legal basis by which the Federal Government is asserting its authority and claim was enacted 20 years ago protecting the desert tortoise of the region from extinction.

As an animal lover I would never want to see any animal harmed, let alone extinct. But when we reach the point where the survival of the tortoise is grounds for abrogating the U.S. Constitution and basic human rights, we are dangerously close to…if not over…the same line the SS crossed. That story ended poorly as well.

We need to understand our connectedness to one another,to all living things, and to the environment within a well-thought through balanced approach. No one aspect of that triad should prevail at the expense of the others. Every American should be appalled and vocal about what is taking place in Nevada. As German Lutheran Pastor and vocal Nazi opponent Erik Dietrich Bonhoeffer said, “Not to speak is to speak. Not to stand is to stand.”


Fast and Furious Deception

Its the Chinese “Year of the Horse.” May I suggest we also make it the American “Year of Thinking for Yourself?” If we don’t, the unending manipulation of facts and truth by the media and the politicians will destroy our Nation.

Uncle SamTwo examples:

1.  The President has suddenly decided to sign an Executive Order to equalize pay for women and men. On its face, noble. Factually, nothing more than an election year ploy. When you compare education, experience, specialized training in similar positions women are receiving parity of pay. Among young, single women with higher education, they are actually being paid greater than similarly situated males. But I repeat, its an election year.

2.  Attorney General Eric Holder, unaccountable for “Fast and Furious” in which both U.S.Border Agents died as did  Mexicans, yesterday testified before the House Oversight Committee and spoke both threateningly and disrespectfully to Congressman Louis Gohmert (R-TX). Arrogance with impunity because we have failed to demand accountability from Holder for “Fast and Furious” and other refusals by him to comply with production of documents subpoenaed of him by Congress.

Yesterday, I heard a caller on talk radio who suggested that the major network news departments are not the moneymakers for their corporate owners. The money makers are their sports and entertainment programming. Therefore, he suggested that anyone angry with media lies, manipulation and their improper relationship to the political class simply stop watching the Super Bowl, the Final Four etc. as well as entertainment programming.

There are 30 million Conservatives in the U.S. and a good amount of Libertarians, Liberals and Independents who are equally disgusted with where we are. If each of us literally stops watching those shows the financial impact will be devastating. Money talks.

Forget the horse. It’s the “Year of Thinking For Yourself.” You’re may be fed up, but you’re not powerless. It just takes thinking for yourself and a healthy dose of the courage of your convictions to act.


Downside of Better Information

I tend to focus on the intricacies of finance because it is so heavily regulated. I use to work in the bond market for many years and know firsthand the impact of bond yields and economic activity.

Bond Market

Banks use to be the hub of bond trading playing an important role in distributing and allocating risk, but as a result of the changes in 2008, namely the Volcker rule, banks play less of a role in the market. Given the destruction of the markets in 2008, banks were told that going forward banks would have to carry much less risk and have much smaller bond portfolios. The result of this is that when banks are asked to trade bonds now, they have  much less inventory to offer and when they buy bonds, then can only buy much smaller amounts now.

So larger trades that use to take place with ease, take much longer now. Pension funds and banks can now longer liquidate their positions with confidence as they once did, which one day will cause a large problem. The regulation that was supposed to keep banks from taking on too much risk has now concentrated all of that risk into the largest bond funds in the world, and these bond funds can now longer sell their bonds as they once did. Over the last 20 years there has been numerous times the bond markets have gotten spooked and have had massive sell offs (1994 pesos crisis, 1998 Asia crisis,2001 tech blowup, 2008 mortgage meltdown) and each time the crash has been worse and more pronounced.  However when the next downturn in the bond markets come ( and they always come) the banks will no longer play the essential role they use to play of distributing and placing bonds throughout the bond market.

There is another huge problem in the bond market that is killing liquidity that no one wants to talk about, and that is the way bond prices are reported. Given that bond prices are traded over the counter, there is no central exchange that records the prices of bonds. The way bond prices were historically reported, was that the banks would send prices to their clients at the end of the day. Over the years the large bond funds did not like this system and they asked the regulators to come in and force the banks to report all the bond trades to a system called “Trace”.

The result of this was that the bond market became very efficient in knowing what the price of the bonds were, in addition the size of the trades were reported as well. Given all of this information portfolio managers became very confident in knowing where all the bond prices were at a given time. Yet instead of the markets becoming more efficient, the market became less so. Banks use to buy large blocks of bonds and for assuming that risk, they expected to make a profit. But, with full price information in the market, banks are no longer willing to bid on bonds.

For example if bond x’s last price on a trade for 2 million bonds was 99, the portfolio manger would expect to sell his bonds at 99 as well. However a bank would be unlikely to buy the bonds at 99 but rather at 98.5 in that the bank would want to make money as well. The portfolio manager might be willing to sell his bonds at 98.5, but he is unable given that he has to justify to his bosses on why he sold his bonds at 98.5 when every one else was getting 99, so no trades get done.

So given the Volker and the advent of Trace, the bond market is a shell of what it use to be. The liquidity has been sapped, eventually this lack of liquidity will make the next downturn much more vicious than the last one we last experienced.

The general consensus is that more regulation and better information is the key to financial stability but in life we always have to deal with unintended consequence of decisions that are made. I would argue the consequences of these two laws/decisions are going to be bad for all of us. I would argue sometimes less control and less regulation actually help the consumer more and make things more efficient.


Steven Clark






Trust as a Business

There was a great piece on 60 minutes last night with Michael Lewis about the financial markets. It is well worth the 14 minutes to watch it and you can see it here:

Michael LewisThe topic was about how high frequency equity trading was destroying the financial markets. The solution to solve the problem, as outlined in the interview, is fascinating…creating a platform were people can trust to trade.

Although as we sit here in 2014 the markets are at an all time high, confidence in the financial institutions is at an all time low. Stock ownership has declined dramatically and given that we live in a capitalistic society this should shock many people. The underpinnings of what makes our society tick… free enterprise, risk taking, entrepreneurship… are being taken advantage of and corrupted by the financial marketplace; these risk takers are shunning the market where capital is being allocated.

Over the last 20 years or so stock exchanges have traded humans for machines. I would venture to say that over 90% of all stock exchanges are now electronic. So, now, when you place an order to purchase a stock that order is being handled by a computer not a person.

As this transformation has taken place, pure computer power and the speed of the fiber network has taken precedent over the ability to allocate capital efficiently. High frequency traders over the last 5 years have built these highly complex algorithms to trade and can now execute trades in milliseconds for fractions of a penny. So by the time “Joe Investor” can execute a trade, the high frequency trader can buy and sell that same stock to “Joe Investor” at a slightly higher price and make money off of his order.

Here is an example in practical terms: Say that you wanted to go to the Dolphins game in Florida and saw 4 tickets on stub hub for $20 each each. You decided to buy the 4 tickets but were only successful at buying 2 tickets at $20.00 each. The remaining two tickets, those same additional 2 tickets that you tried to buy minutes before, are now trading at $25.00 each. Why? Because the system recognized your order and filled only 1/2. Then, it raised the price on the other 2 tickets. Since you really need the 2 extra tickets, you buy the last 2 tickets for $10.00 more per ticket.

This example is the same thing that’s happening on Wall Street. High frequency traders can see your order before it gets executed.  Then they buy that same stock and sell it back to you for a slightly higher price. The practice is called “front running.” Normally front running is illegal. However, on Wall Street, the way that high frequency traders are doing it…its legal.

A trader from Royal Bank of Canada spent the last 5 years uncovering the problem, detailing it and alerting investors to the pitfall. He subsequently started a new exchange, which brilliantly circumvents the high frequency trader’s edge by way of new software and complicated data routing. With his new exchange, people can trade stocks without the impact of high frequency traders there to rip them off. So far business has been good.

When asked why his business is doing so well he said “trust.”  Really that is all that he’s selling. People trade on his system because they know that aren’t going to be ripped off. What a beautiful way to run a business. Do what you say you are going to do and people will come.


Steven Clark


Creating New Patterns

On Friday’s podcast we spoke about how common it is for people to move from a particular state because of undesirable economic conditions and relocate..taking with them the same political affiliations and ideas that relate to the conditions they sought to flee.

Letting GoThis difficulty that we humans have in letting go of what isn’t working for us goes way beyond politics. In a very real sense it why “history repeats itself.” That adage is true because we repeat patterns of behavior whether they serve us or not or whether they lead us to the outcomes we seek.

This sad truth exists because letting go, allowing in new experiences, seeking out new people or establishing new patterns means embracing the unknown. They each require courage and trust. They each also necessitate the admission to oneself that all of life is transient and temporary.

Precisely because we have so much emotionally invested in the material, physical world…hoping those investments provide us with something to hold on to in the face of life’s inherent uncertainties, we close ourselves off from the wonders of change and the infinite possibilities that chaos brings.

In a world that daily seems to become more chaotic, don’t allow the purveyors of fear to shut down your creativity and your natural wonder of the unknown. Remember, chaos is the natural byproduct of change… and change, mysterious and at times both challenging and inexplicable, is the precursor to growth.

So, if you’re relocating, pause and re-evaluate if your location isn’t the only thing that needs to be left behind.


Capital Destruction and its Consequences

During the financial crisis of 2009 General Motors was one of the many companies that filed for bankruptcy. But unlike other bankruptcies, GM was allowed to carve up the company as they saw fit, or better said…. the way the unions saw fit.

The financial markets treat bankruptcy in a very specific way. Creditors of the company always come first, that is people who lent the company money are 1st in line to be paid. Creditors supersede everybody else in the food chain in that loans are contractual obligations to pay. Equity holders, union workers, salaried employees are usually last in line because the nature of the agreements- these agreements  are within the company itself and the company can no longer honor those contracts due to the bankruptcy.

General Motors

The way a normal bankruptcy works is that the creditors have an economic stake to recoup as much money as possible and are incentivezed to make the company work again. This might take the form in making less cars, paying people less money, firing people, etc… So in many cases companies that come out of bankruptcy emerge stronger and leaner than before.

But given 2008 was an election year and the democratic party had made promises to the unions for their votes, GM went into bankruptcy but with the union workers given preference in the restructuring over the bond holders. In one full swoop Obama was able to rewrite bankruptcy laws for the people who helped elect him. The unions ended up with the majority of their contracts in place.( the U.S taxpayer ended up lending the money to GM) The bond holders were given cents on the dollar and many of the employees (who were non union) saw their savings wiped out but not those of the union workers. In the end, the needed reforms that were meant to take place never happened.

Fast forward to 2014 in 2014  GM began recalling 1.6 million cars with faulty ignition switches that were linked to 12 deaths and 31 accidents over the past decade…  And two weeks ago, GM announced that it had received reports as early as 2001 about the problem – three years earlier than previously disclosed.

 On March 11, the Justice Department said it would open a criminal investigation into GM’s disclosures regarding the faulty switch. 

As part of the investigation, authorities are now looking to see if GM committed bankruptcy fraud by not disclosing the massive future liabilities tied to the recall. On top of this GM has had a hard time selling cars.

Now, GM has been selling cars to people with less than stellar credit (The market is now known as the sub prime auto market) GM has been making money via its finance arm.  The way it works is the following, GM can borrow money at 2% and lend at way above that (19%). So what we have seen is soaring car loans, terrible credit lending standards and suprime cars loans being abut 25% of all car loans made. What happens next is that GM sells these loans to investors, pension funds, banks, etc..These loans are beginning to go bad and these loans average around  $25,000 and the average loan today is around 5 years.

“Americans currently owe more than $800 billion against their cars and trucks – 34% of this debt is owed by subprime credits. Another 10% is owed by “deep subprime” – folks with credit scores below 550. Businessweek quotes Morgan Stanley analyst Adam Jonas pointing out the obvious: “Perhaps more than any other factor, easing credit has been the key to the U.S. auto recovery.”

This story is not going to end well and capital will be destroyed once again. In California many years go the EPA banished brush clearing as it impacted the wildlife but a few years later, California was engulfed by horrendous fires that destroyed thousand of homes. One of the main culprits was that the excess brush fueled the fires to levels previously unseen.

I feel this story will end the same way as those fires, by not cleaning and clearing up all the problems in GM, this will start a whole new financial mess.


Steven Clark



Empire of Illusion Podcast

One of the main things we have witnessed over the last 15 years has been the decline of our culture, these cultural markers are everywhere if you are trained to look for them and have implications for  society at large. On our last podcast dated March 21, 2014, We talked about Chris Hedges latest book “Empire of Illusions” where he went on to explain some of the things he observed:

  • Professional Wrestling and how the story lines have changed over the years. American exceptionalism is no longer admired or revered , our enemies are the same institutions we once admired: finance, government, marriage etc..These story lines are reflecting back to us how these institutions have fallen apart.
  • How pornography has infected the culture and the rise of violent porn. The growth of the business, the amount of the users that now watch porn and the subjugation of women who are enslaved in these industries are trends that should alarm us all. The government has no problem instructing and regulating its citizens over the obesity epidemic yet there seems to be no government action regarding its citizens consuming violent porn.
  • Our elected officials are symptomatic of the cultural rot that is taking place. Our politicians lie to us openly and brazenly and now they will not be caught. From the lies of: Benghazi, ObamaCare, Fast and Furious, etc we have to be willing to call out our elected officials regardless of their political affiliation.

Posted by Steven Clark



Its All About Energy

Just a little intro to the perspective I bring to the podcast.

th (18)I’ve always been uncomfortable with the term “righteousness.” Mainly because its judgmental, subjective and been used to herd people into certain ways of acceptable behavior as defined by…who?

Everything in the Universe is comprised of energy. Everything. So I coined the concept of “rightuseness”®…the rightful use of energy. When we use energy in accordance with Universal Law, human behavior reflects the highest good for all concerned. It becomes not about what is good or evil but rather about what is life-supporting, life-enhancing, and the intention to create harmony and balance in the micocosm and macrocosm of our lives.

So, when the lawyer in me is done analyzing for you the factual part of the stories that are on everyone’s mind and all over talk radio in any given week…I perceive it all from the perspective of rightuseness and present those same stories from above the fray.